1045-00007 · Client 1045 · Closing

sec-termination-letter-analysis-memo.docx DOCUMENT Litigation

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ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT — DO NOT DISTRIBUTE

CALDERWOOD & HARKNESS LLP 425 Lexington Avenue, 30th Floor New York, NY 10017

May 30, 2024

MEMORANDUM

CONFIDENTIALITY NOTICE: This memorandum is protected by the attorney-client privilege and the attorney work-product doctrine and is prepared in connection with the provision of legal advice to Belmont Ridge Bank National Association. It contains confidential and privileged information. Do not distribute, copy, or disclose this memorandum, in whole or in part, without the prior written authorization of Victoria Chambers, Partner, Calderwood & Harkness LLP. Any unauthorized dissemination may constitute a waiver of applicable privileges.

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I. Executive Summary

On May 30, 2024, Calderwood & Harkness LLP ("C&H" or the "Firm") received a letter from the Staff of the Securities and Exchange Commission's Division of Enforcement (the "Staff"), signed by Branch Chief Renata Moss, advising that the Staff has completed its investigation in the matter captioned In the Matter of Belmont Ridge Bank National Association, File No. HO-14287 (Formal Order of Investigation No. EN-2023-0947), and has determined not to recommend an enforcement action against Belmont Ridge Bank National Association ("BRB" or the "Bank"). A complete reproduction of the Staff's termination letter is set forth in Section II of this memorandum and attached hereto as Attachment A.

This outcome constitutes a Wells-stage termination — the most favorable procedural posture in which an investigation can conclude once the Staff has reached the point of formally notifying a subject of its intention to recommend charges. On March 8, 2024, the Staff issued a telephonic Wells notification to C&H, advising that it was considering recommending charges against BRB under Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 13a-1 and 12b-20 promulgated thereunder. In response, C&H prepared and filed a comprehensive 42-page Wells Submission on April 5, 2024, followed by a supplemental letter on April 22, 2024 presenting updated credit-quality metrics from BRB's FY 2023 reporting period. The Staff's decision not to proceed with an enforcement recommendation, issued less than two months after the Wells Submission, represents a full vindication of the defense strategy pursued by this Firm on behalf of the Bank.

The investigation, which was opened on September 18, 2023 — initially as a matter under inquiry ("MUI") before being elevated to a formal order of investigation on October 12, 2023 — concerned the adequacy of BRB's allowance for credit losses ("ACL") disclosures relating to the Bank's BridgeFin digital lending portfolio. Specifically, the Staff examined whether BRB's ACL as reported in the following periodic filings was materially understated and whether BRB's disclosures concerning the assumptions and methodologies underlying the ACL were inadequate:

• BRB's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Commission on February 28, 2023 (the "FY 2022 10-K");

• BRB's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the Commission on May 10, 2023 (the "Q1 2023 10-Q"); and

• BRB's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed with the Commission on August 9, 2023 (the "Q2 2023 10-Q").

This memorandum is prepared for the matter file and for the review of the responsible partners. It is organized as follows: (a) Section II reproduces the full text of the Staff's termination letter and documents the circumstances of its receipt; (b) Section III analyzes the legal effect of the termination; (c) Section IV discusses the absence of a tolling agreement and the applicable statute of limitations; (d) Section V addresses related proceedings and regulatory considerations, including the Bank's relationship with its primary banking regulator, the Office of the Comptroller of the Currency ("OCC"), and the status of private securities litigation exposure; (e) Section VI addresses D&O insurance implications and final cost reporting; (f) Section VII discusses disclosure considerations; (g) Section VIII addresses document retention and matter administration; and (h) Section IX identifies recommended next steps.

II. Attachment A — SEC Staff Termination Letter (Full Text Reproduction)

A. Reproduction of the Letter

The following is a verbatim reproduction of the Staff's termination letter received on May 30, 2024. The original letter is maintained in the matter file and has been uploaded to the Firm's document management system under Matter No. SC-MAT-2023-4172.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION DIVISION OF ENFORCEMENT 100 F Street NE Washington, D.C. 20549

May 30, 2024

Victoria Chambers, Esq. Calderwood & Harkness LLP 425 Lexington Avenue, 30th Floor New York, NY 10017

Re: In the Matter of Belmont Ridge Bank National Association, File No. HO-14287

Dear Ms. Chambers:

The investigation captioned above was conducted pursuant to a Formal Order of Investigation, No. EN-2023-0947, issued on October 12, 2023. Based upon the information gathered in the investigation to date, the Staff of the Division of Enforcement has completed its investigation and, at this time, does not intend to recommend an enforcement action by the Commission against Belmont Ridge Bank National Association.

This letter should not be construed as an indication that the Commission or its Staff has determined that no violation of the federal securities laws has occurred. The Commission reserves the right to take whatever action it deems appropriate at any time in the future. Further, this letter should not be construed as a confirmation that there are no civil or other proceedings that may be brought at a later date.

We appreciate the cooperation of Belmont Ridge Bank National Association and its counsel during the course of this investigation.

Sincerely,

Renata Moss Branch Chief Division of Enforcement

cc: Andrea Felton, Senior Staff Attorney Christopher Yuen, Staff Attorney Diane Milosevic, Staff Accountant Gregory Bonham, Assistant Director, Financial Fraud Unit

B. Notes on Receipt

The termination letter was initially received via email from Senior Staff Attorney Andrea Felton to Victoria Chambers and Jasmine Thornton at approximately 2:17 PM Eastern Time on May 30, 2024. The email transmission included a PDF scan of the signed letter on Division of Enforcement letterhead. Ms. Felton's email contained no additional substantive commentary beyond a brief transmittal message.

A hard copy of the letter was subsequently received by regular U.S. mail at the Firm's New York office on June 3, 2024. The hard copy was consistent in all material respects with the PDF version received electronically.

Both the electronic and hard-copy versions of the letter have been filed in the matter file under Matter No. SC-MAT-2023-4172 and uploaded to the Firm's document management system. The electronic version has been saved in the "Correspondence — SEC" subfolder with the filename "2024-05-30SECTerminationLetterHO-14287.pdf."

III. Legal Effect of the Termination

A. Nature of a Staff Closing Letter

The letter reproduced in Section II constitutes a statement of the Staff's current enforcement posture with respect to BRB. It reflects the Staff's determination, based on the information gathered during the investigation, that it will not recommend that the Commission bring an enforcement action against the Bank at this time. Several important legal characteristics of the letter merit discussion.

First, the letter is not a formal order of the Commission. It is not an adjudication, a consent decree, a no-action letter, or any other form of binding Commission determination. The letter is issued by the Division of Enforcement Staff — specifically, by Branch Chief Renata Moss — acting within the Staff's delegated authority to manage and close investigations. The Commission itself has not voted on any matter related to this investigation, and the closing letter does not reflect any formal Commission determination regarding the merits of the underlying conduct.

Second, the Staff's decision not to recommend an enforcement action is inherently discretionary. The Staff exercises prosecutorial discretion in determining which investigations to pursue and which to terminate, and the decision to close an investigation does not require any particular finding or conclusion regarding the merits. The closing letter expressly preserves the Commission's authority to "take whatever action it deems appropriate at any time in the future," which is standard boilerplate language included in virtually all SEC investigation closing letters. This reservation of authority is consistent with the Commission's general enforcement policies and does not, in our assessment, signal any particular concern about BRB's conduct or any intention to revisit the matter.

Third, and critically, the closing letter does not constitute a finding that no violation of the federal securities laws occurred. The letter explicitly states that it "should not be construed as an indication that the Commission or its Staff has determined that no violation of the federal securities laws has occurred." This language is standard and appears in essentially all Staff closing letters. It reflects the fundamental principle that the Staff's decision not to recommend charges is a prosecutorial judgment, not a substantive determination of innocence or non-violation.

Fourth, no admission, consent, or settlement of any kind was required from BRB in connection with the termination. The closing was unilateral — it reflects the Staff's independent determination, made after reviewing the full investigative record (including BRB's Wells Submission and supplemental materials), that an enforcement recommendation is not warranted. BRB was not required to agree to any conditions, undertakings, remedial measures, or future reporting obligations as a condition of the termination.

While the reopening of a terminated investigation is theoretically possible under the Commission's reserved authority, such reopenings are, in practice, exceedingly rare. They typically occur only in circumstances involving the discovery of previously concealed evidence, the emergence of a credible whistleblower complaint alleging fraud or obstruction that was not known during the initial investigation, or a significant change in the legal or factual landscape (such as a restatement of the financial statements at issue). None of these circumstances is present here, and the risk of reopening is assessed in detail in Section IV.D below.

B. Precedential and Collateral Effect

The closing letter has no res judicata or collateral estoppel effect in any other judicial or administrative proceeding. Because the letter does not constitute an adjudication on the merits — and, indeed, does not address the merits at all — it cannot be invoked as a binding determination in any subsequent proceeding involving BRB, whether brought by private plaintiffs, other regulatory agencies, or the Commission itself.

BRB's cooperation with the SEC investigation, including the production of documents and the testimony of witnesses, cannot be used against the Bank in any other proceeding as evidence of wrongdoing. However, it is important to note that documents produced to the SEC during the investigation may be subject to sharing arrangements with other federal and state regulators. The SEC maintains memoranda of understanding and interagency cooperation agreements with a number of regulatory bodies, including the Department of Justice ("DOJ"), the OCC, the Federal Deposit Insurance Corporation ("FDIC"), and various state attorneys general. Under these arrangements, the SEC may share information obtained during an investigation with other agencies without requiring BRB's consent, subject to certain procedural requirements.

We note that no indication of any referral to the DOJ or any other agency was communicated by the Staff at any point during the investigation. Moreover, the nature of the conduct at issue — an accounting-estimate dispute involving the application of ASC 326 (Current Expected Credit Losses, or "CECL") — is not the type of conduct that typically generates criminal referrals. The Staff never alleged fraud, and no scienter-based charges were contemplated at any point. The absence of any referral indication, combined with the non-fraud character of the investigation, significantly mitigates the risk of a parallel proceeding by another agency.

The termination of the SEC investigation does not affect BRB's obligations to its primary banking regulator, the OCC. The OCC conducted a concurrent supervisory examination during the relevant period, the results of which are discussed in Section V.A below. The OCC's supervisory processes are independent of the SEC's enforcement activities, and the termination of the SEC investigation does not constitute a finding or determination by any banking regulator.

C. Implications for Individual Officers and Employees

An important aspect of the termination concerns its effect on the individual officers and employees of BRB who were involved in the investigation. The Wells notification call on March 8, 2024, identified only BRB as an entity — not any individual officer, director, or employee — as a potential respondent. Throughout the course of the investigation, no individual was separately identified by the Staff as a subject, target, or person of interest.

Three senior BRB personnel provided sworn investigative testimony to the Staff during the course of the investigation:

• Patricia Navarrete, Executive Vice President and Chief Financial Officer, testified on January 18, 2024 (approximately 6 hours, 14 minutes of on-the-record testimony);

• Naveen Chakravarti, Senior Vice President and Division Head, BridgeFin Digital Lending, testified on January 25, 2024 (approximately 5 hours, 42 minutes of on-the-record testimony); and

• Raymond Hu, Senior Vice President and Chief Accounting Officer, testified on February 8, 2024 (approximately 7 hours, 8 minutes of on-the-record testimony).

None of these individuals was separately notified of potential charges at any time, and no individual Wells notification was issued. The closing letter is addressed to BRB through its counsel, Victoria Chambers, and does not separately address any individual.

Based on the foregoing, we conclude that the Staff's termination of the investigation effectively resolves the matter as to both BRB and its personnel. The standard disclaimer language in the closing letter preserves the Commission's theoretical authority to take future action against any person, including individuals, but the absence of any individual Wells notification, combined with the non-scienter posture of the investigation and the Staff's decision to close the matter after a full Wells process, renders the prospect of future individual charges arising from this investigation exceedingly remote.

We recommend that C&H prepare a brief communication for Derek Sung (General Counsel) confirming this assessment, which Mr. Sung may share with Ms. Navarrete, Mr. Chakravarti, and Mr. Hu as he deems appropriate.

IV. Statute of Limitations Analysis

A. Applicable Statute

The general statute of limitations for SEC civil enforcement actions seeking penalties is set forth in 28 U.S.C. § 2462, which provides:

"Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued."

This five-year limitations period applies to all claims for civil monetary penalties brought by the SEC, regardless of the underlying statutory provision. The Supreme Court held in Kokesh v. SEC, 581 U.S. 455 (2017), that disgorgement, as sought by the SEC, constitutes a "penalty" within the meaning of Section 2462, and is therefore subject to the same five-year limitations period. Prior to Kokesh, the SEC had taken the position that disgorgement was an equitable remedy not subject to any statute of limitations; that position is no longer tenable.

For claims seeking only injunctive relief under Section 21(d) of the Exchange Act, there is some judicial uncertainty as to whether Section 2462 applies. Several courts have held that purely injunctive relief is not a "penalty" within the meaning of the statute and is therefore not subject to the five-year limitations period. See, e.g., SEC v. Graham, 823 F.3d 1357, 1363 (11th Cir. 2016). However, as a practical matter, the SEC rarely seeks standalone injunctive relief without an accompanying penalty claim, and the relevance of this distinction to BRB's case is minimal.

B. Application to BRB's Filings

The potential violations at issue in the investigation arose from the filing of three periodic reports with the Commission. For purposes of Section 2462, the limitations period accrues on the date of the alleged violation — which, in the case of a filing violation under Section 13(a) and the rules thereunder, is the date on which the filing was made (or, in the case of a failure-to-file claim, the date on which the filing was due). The relevant dates and corresponding limitations expiration dates are as follows:

As the table above reflects, even absent the Staff's termination of the investigation, substantial time remains within the limitations period for the Commission to bring an action if it were to reverse course. The earliest-expiring potential claim (relating to the FY 2022 10-K) does not expire until February 28, 2028 — approximately three years and nine months from the date of the closing letter. The latest-expiring claim (relating to the Q2 2023 10-Q) does not expire until August 9, 2028 — approximately four years and two months from the date of the closing letter.

C. Tolling Agreement Status

No tolling agreement was entered into between BRB and the SEC at any point during the investigation. This was a deliberate strategic decision, and the circumstances merit documentation.

During the October 20, 2023 meet-and-confer between C&H and the Staff regarding the document-production protocol, Senior Staff Attorney Andrea Felton informally raised the possibility that a tolling agreement might be appropriate, noting that the Staff anticipated a lengthy review period and that a tolling agreement would enable the Staff to proceed at a measured pace without concern about the running of the limitations period. Victoria Chambers declined this informal suggestion, advising that BRB intended to cooperate fully and expeditiously with the investigation but wished to preserve all procedural defenses. This position was consistent with the defense strategy — agreed upon with Derek Sung and the Audit Committee — of maintaining maximum cooperation while avoiding any voluntary extension of the Commission's enforcement window.

The Staff did not press the issue, and no further discussion of a tolling agreement occurred during the remainder of the investigation.

The absence of a tolling agreement means that the five-year limitations clock under 28 U.S.C. § 2462 has run uninterrupted from the respective filing dates of the periodic reports at issue. No period of tolling has been agreed to, and no judicial tolling has been ordered. Accordingly, the limitations analysis set forth in Section IV.B above reflects the full and accurate remaining limitations periods.

While the remaining limitations period — approximately 3.75 to 4.2 years from the date of the closing letter — is substantial in absolute terms, the fact that the Staff elected to terminate the investigation after conducting a full Wells process significantly reduces the practical likelihood that the Commission would seek to bring an action during the remaining period. A Staff decision to terminate after a Wells process reflects a considered judgment, made after reviewing all available evidence and the defense's arguments, that the case is not meritorious or that the available evidence is insufficient to support a successful enforcement recommendation. Reversing such a decision would require new and significant evidence or a change in legal or factual circumstances that is not presently foreseeable.

D. Risk Assessment

We assess the likelihood of the Commission reopening this investigation or reversing the Staff's termination decision as very low. This assessment is based on the following factors, each of which independently weighs against the prospect of future action and which, taken together, render such action remote:

Thoroughness of the Investigation. The Staff conducted a comprehensive and rigorous investigation. BRB produced 284,617 documents — comprising approximately 1.42 million pages — across six rolling productions between October 30, 2023 and February 15, 2024. All documents were Bates-numbered (BRB-SEC-000001 through BRB-SEC-284617) and produced in accordance with the SEC's Electronic Productions of Documents standards. In addition, a privilege log containing 1,847 entries was prepared and submitted. The Staff issued three subpoenas for documents and three subpoenas for testimony, and no discovery disputes arose during the investigation that would have left gaps in the evidentiary record.

Witness Testimony. Three key witnesses — Patricia Navarrete (CFO), Naveen Chakravarti (SVP & Division Head, BridgeFin), and Raymond Hu (Chief Accounting Officer) — provided sworn investigative testimony. Each witness testified at length and was examined by multiple members of the Staff team. No witness invoked the Fifth Amendment or otherwise declined to answer questions. The testimony was consistent, credible, and supportive of BRB's position that the ACL reflected reasonable accounting judgments.

Completion of the Wells Process. The investigation proceeded through the full Wells process, which represents the most rigorous level of pre-filing Staff review. The Staff issued a Wells notification on March 8, 2024; C&H filed a detailed 42-page Wells Submission on April 5, 2024; and a supplemental letter with updated credit metrics was submitted on April 22, 2024. The Staff's decision to terminate after reviewing the Wells Submission reflects a considered and final Staff judgment, not merely a deferral of the enforcement decision.

Nature of the Dispute. The core dispute in the investigation was whether BRB's ACL of $143.5 million — representing 3.50% of the $4.1 billion in outstanding BridgeFin digital lending loans as of December 31, 2022 — was materially understated relative to the Staff's preliminary view of $180.8 million (4.41% of outstanding loans). The alleged understatement of $37.3 million was framed at all times as a reasonable-estimation dispute under ASC 326 (CECL), not as a fraud. The Staff never alleged intentional misstatement, reckless disregard, or any other form of scienter. The dispute was, at its core, a disagreement about the appropriate level of qualitative adjustments to BRB's modeled loss estimates — a quintessentially judgmental exercise that courts and the Commission have long recognized as involving a range of reasonable outcomes.

Materiality Analysis. The alleged understatement of $37.3 million exceeded BRB's internal materiality threshold of $30.6 million (calculated as 5% of FY 2022 pre-tax income of $612 million) by only $6.7 million. In our Wells Submission, we demonstrated that this difference was within the range of reasonable estimates as established by the forensic analysis prepared by Brindoval Analytic Partners LLC (the Firm's retained forensic accounting expert) and by a peer-bank comparison showing that BRB's ACL coverage ratio was consistent with the range observed among similarly situated financial institutions. The Staff did not challenge the Brindoval analysis or the peer-comparison data in any subsequent communication.

Improving Credit Metrics. By the time of the supplemental Wells letter on April 22, 2024, BRB's Q4 2023 credit-quality metrics for the BridgeFin portfolio had improved materially. The 90+ day delinquency rate had declined to 1.48%, down from the elevated levels that had prompted the Staff's initial concern. Moreover, BRB had increased its ACL to $156.2 million as reported in the FY 2023 Form 10-K filed February 27, 2024, reflecting management's exercise of judgment in light of evolving credit conditions. These developments further supported BRB's position that its ACL methodology was sound and that the FY 2022 ACL, while lower than the Staff's estimate, was not materially misstated.

Absence of Scienter Indicators. No scienter-based charges — such as fraud under Section 10(b) and Rule 10b-5, or books-and-records violations under Section 13(b)(2)(B) — were contemplated at any point during the investigation. The Wells notification referenced only Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 12b-20 — all of which are strict-liability or negligence-based provisions that do not require proof of scienter. The absence of any fraud-based theory further reduces the risk of a future action, as the Commission is more likely to revisit a terminated investigation when potential fraud is involved.

Bottom Line. Absent extraordinary circumstances — such as the discovery of previously concealed evidence, the emergence of a credible whistleblower complaint alleging fraud or intentional manipulation of the ACL, or a restatement of BRB's financial statements for the periods at issue — the prospect of future enforcement action arising from File No. HO-14287 is remote. We recommend that BRB treat the matter as definitively resolved for all practical purposes, while maintaining the document-retention protocols described in Section VIII as a prudent precaution.

V. Related Proceedings and Regulatory Considerations

A. OCC Supervisory Status

BRB's primary federal banking regulator is the Office of the Comptroller of the Currency, which supervises BRB under OCC Charter No. 24891. Throughout the period covered by the SEC investigation, the OCC conducted its own concurrent supervisory examination of BRB's ACL methodology and BridgeFin credit-quality reporting. The results of that examination are relevant to the overall risk assessment.

The OCC's examination found no material deficiency in BRB's ACL methodology with respect to the BridgeFin digital lending portfolio. No enforcement action, consent order, cease-and-desist order, formal agreement, or commitment letter was issued by the OCC in connection with the ACL matters that were the subject of the SEC investigation. Similarly, no matter requiring attention ("MRA") or matter requiring immediate attention ("MRIA") was issued by the OCC examiners in connection with the BridgeFin ACL.

BRB's CAMELS composite rating — the confidential supervisory rating assigned by the OCC based on its assessment of Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk — remains at 2 ("Satisfactory") as of the most recent examination cycle completed in September 2023. A CAMELS composite rating of 2 indicates that the Bank is "fundamentally sound" and that "only moderate weaknesses are present and are well within the board of directors' and management's capabilities and willingness to correct."

The SEC's termination of its investigation does not alter BRB's supervisory relationship with the OCC in any material respect. BRB should continue to engage cooperatively with its OCC examiners in the ordinary course regarding BridgeFin credit-quality reporting, CECL model governance, and any other supervisory matters. We recommend that Derek Sung advise the OCC's lead examiner of the SEC investigation termination as a matter of courtesy and transparency, consistent with BRB's general approach of maintaining an open and cooperative relationship with its banking regulators.

B. Private Securities Litigation

As of the date of this memorandum, no private securities class action, derivative lawsuit, or other private litigation has been filed against BRB or any of its officers and directors in connection with the ACL disclosures at issue in the SEC investigation. We have monitored federal and state court dockets, as well as securities litigation databases, and have identified no pending or threatened private actions.

The SEC's closing letter does not immunize BRB from private litigation, nor does it establish any defense or bar to private claims. However, the absence of an SEC enforcement action substantially reduces the risk that plaintiffs' counsel will pursue claims based on these facts. In the experience of this Firm, plaintiff-side securities litigation firms frequently monitor SEC enforcement activity for potential targets, and the filing of an SEC action is often a catalyst for the filing of related private claims. The absence of any enforcement action here removes that catalyst.

Moreover, even if private claims were to be pursued, significant legal obstacles would confront any potential plaintiff. The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") would preempt any state-law class action alleging misrepresentation in connection with the purchase or sale of a covered security, channeling any such claims into federal court under the federal securities laws. The Private Securities Litigation Reform Act of 1995 ("PSLRA") would impose heightened pleading requirements, including the requirement that the plaintiff allege, with particularity, facts giving rise to a "strong inference" of scienter — a standard that would be extremely difficult to satisfy on the facts of this case, given the non-fraud posture of the SEC investigation and the reasonable-estimate character of the underlying ACL dispute.

Additionally, BRB's stock price (Nasdaq: BRDG) did not experience a statistically significant decline in connection with the disclosure of the SEC investigation or the underlying ACL matters, which would complicate any plaintiff's effort to establish loss causation and economic loss — essential elements of a private securities fraud claim under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).

We assess the risk of private securities litigation arising from these facts as low, and recommend that BRB continue to monitor for any litigation activity in the ordinary course.

C. Auditor / PCAOB Considerations

Whitfield Keane LLP, a public accounting firm registered with the Public Company Accounting Oversight Board ("PCAOB") under Registration No. 2847, served as BRB's independent registered public accounting firm for fiscal years 2021 and 2022. The audit engagement for the FY 2022 financial statements — which included BRB's ACL estimates at issue in the SEC investigation — was led by engagement partner Lorraine Dupont.

The SEC's termination of the investigation against BRB does not directly address any PCAOB matter involving Whitfield Keane. The PCAOB has independent authority to investigate and sanction registered public accounting firms and their associated persons for violations of the Sarbanes-Oxley Act, PCAOB standards, or applicable professional standards. However, the absence of an SEC finding of material misstatement in BRB's financial statements significantly reduces the basis for any audit-failure inquiry. An audit failure, by definition, presupposes a material misstatement in the audited financial statements; without such a finding, there is no predicate for a claim that the auditor failed to detect a misstatement.

Hargrove & Millstein LLP, under the direction of lead partner Samuel Hargrove, served as counsel to Whitfield Keane in connection with the SEC inquiry. C&H coordinated with Hargrove & Millstein on several occasions during the investigation, including with respect to the production of Whitfield Keane's audit workpapers (which were produced directly by Whitfield Keane pursuant to a separate SEC subpoena) and the scheduling of testimony. We are not aware of any separate PCAOB investigation or other proceeding involving Whitfield Keane in connection with the BRB audit engagement, and no such proceeding has been communicated to us by Hargrove & Millstein or by any other source.

We recommend that C&H notify Hargrove & Millstein of the SEC's termination letter as a professional courtesy, so that Whitfield Keane may update its own records and make any appropriate notifications to its professional liability insurer.

VI. D&O Insurance Implications

A. Claims Status Update

The SEC investigation was timely tendered as a Claim under BRB's directors' and officers' liability insurance program. The tender was made on October 5, 2023 — promptly following the issuance of the Formal Order of Investigation on October 12, 2023, and within the policy's notice-of-claim reporting window — to the following carriers:

• Primary Layer: Northcastle Mutual Assurance Company, D&O Policy No. NMA-DO-2023-11847, with a per-claim limit of $15,000,000 and an entity retention (self-insured retention) of $2,500,000. The policy period is July 1, 2023 through July 1, 2024.

• First Excess Layer: Cascade Omnivrel Insurance Group, D&O Policy No. CFIG-XS1-2023-5598, providing $10,000,000 in excess of the $15,000,000 primary limit (i.e., attaching at $15,000,000 and providing coverage up to $25,000,000 in aggregate).

Northcastle Mutual's claims were administered by the insurer's retained claims counsel, Thornfield & Rowe LLP, under the direction of partner Brenda Alvaro. On October 20, 2023, Thornfield & Rowe issued a coverage acknowledgment letter accepting the SEC investigation as a covered Claim under the policy, subject to a reservation of rights. The reservation of rights was standard in scope and did not raise any coverage defenses specific to the facts of BRB's case. Throughout the investigation, Northcastle Mutual did not exercise panel-counsel requirements or seek to limit BRB's choice of defense counsel; Calderwood & Harkness was accepted as defense counsel under the policy without objection.

BRB's D&O insurance program is administered by Ridgeline Governance Advisors LLC, BRB's insurance broker of record, under the direction of Melinda Tran, Senior Vice President.

B. Final Cost Summary

The total defense costs incurred in connection with the SEC investigation are as follows:

Calderwood & Harkness LLP Total Fees: $3,847,622

The Firm's gross fees before application of the negotiated fee-cap arrangement were $4,767,850, calculated based on the following timekeeper rates and hours:

Pursuant to the fee arrangement agreed upon with BRB at the outset of the engagement, a 19.3% reduction was applied to gross fees, yielding a net fee of $3,847,622 (i.e., $4,767,850 × 0.807 = $3,847,619.50, rounded to $3,847,622 per the final invoice). This fee arrangement was negotiated by Derek Sung and approved by the Audit Committee in connection with BRB's retention of C&H for the SEC investigation.

Brindoval Analytic Partners LLC Fees: $618,400

Brindoval Analytic Partners LLC served as the Firm's retained forensic accounting expert. Brindoval's work product included a detailed analysis of BRB's CECL methodology, an independent recalculation of the ACL under alternative assumptions, a peer-bank comparison of ACL coverage ratios, and a review of BRB's qualitative adjustment framework. Brindoval's analysis was instrumental to the Wells Submission and supplemental letter.

Total Defense Costs: $4,466,022

D&O Retention and Reimbursement:

No penetration of the first excess layer (Cascade Omnivrel Insurance Group) was required, as total defense costs of $4,466,022 remained well within the $15,000,000 primary-layer limit. No indemnity payments were made or required, as the investigation was terminated without any settlement, judgment, or other disposition requiring payment by BRB or any insured person.

C. Notification to Carrier

We recommend that C&H (or BRB's in-house legal team, with our assistance) promptly take the following actions with respect to the D&O insurance program:

1. Notify Northcastle Mutual Assurance Company (through Thornfield & Rowe LLP, Brenda Alvaro) and Ridgeline Governance Advisors LLC (Melinda Tran) of the SEC's termination of the investigation. The notification should include a copy of the Staff's termination letter (Attachment A) and a brief cover letter confirming that the matter has been resolved without any enforcement action, settlement, or payment obligation.

2. Submit final invoices for reimbursement of defense costs in excess of the $2,500,000 entity retention. As noted above, the total amount to be reimbursed by Northcastle Mutual is $1,966,022. We understand that interim payments of approximately $1,200,000 have been received from Northcastle Mutual to date, leaving an estimated remaining balance of approximately $766,022 to be billed and collected.

3. Confirm with Ridgeline Governance Advisors that no additional notification to Cascade Omnivrel Insurance Group is required beyond the initial notice of claim, given that the excess layer was not penetrated.

The D&O policy period of July 1, 2023 through July 1, 2024 remains in effect, and the termination of the investigation occurring within the policy period should simplify any remaining coverage issues. No late-notice defense is available to the carrier, and the reservation of rights previously issued by Thornfield & Rowe should be resolved in favor of coverage upon submission of the termination letter.

VII. Disclosure Considerations

A. Form 8-K

BRB should evaluate whether a Current Report on Form 8-K is appropriate to disclose the termination of the SEC investigation. This evaluation involves balancing several considerations.

The SEC investigation was previously disclosed in BRB's periodic filings, including as a risk factor in Part I, Item 1A of the FY 2023 Form 10-K (filed February 27, 2024) and as a legal proceeding in Part I, Item 3 (Legal Proceedings) of the same filing. The disclosure noted the existence of the investigation, the general subject matter (ACL disclosures relating to the BridgeFin portfolio), and the potential for the investigation to result in an enforcement action. The investigation was also referenced in the notes to BRB's consolidated financial statements in connection with the disclosure of contingencies under ASC 450.

The termination of the investigation is undoubtedly material positive information that a reasonable investor would consider significant in making investment decisions. The elimination of the overhang of a potential SEC enforcement action removes a meaningful risk to BRB's financial condition, results of operations, and reputation. From a pure materiality perspective, the termination merits prompt disclosure.

However, the SEC's reporting framework does not specifically mandate an 8-K filing for the termination of a government investigation. Item 8.01 of Form 8-K ("Other Events") permits, but does not require, the reporting of events that the registrant deems of importance to security holders. No other enumerated Item of Form 8-K (such as Item 1.01 for material agreements or Item 2.06 for impairments) is directly applicable.

Recommendation: We recommend that BRB consult with Derek Sung (General Counsel) and Caldwell Pratt & Stein LLP (Martin Caldwell, BRB's securities reporting counsel) regarding the advisability and timing of a voluntary 8-K filing under Item 8.01 and/or an accompanying press release announcing the investigation's resolution. Factors to be weighed include:

• The market's awareness of the investigation (based on prior periodic-filing disclosures);

• The potential for selective disclosure concerns under Regulation FD if the termination is communicated to certain parties before being publicly disclosed;

• BRB's historical practice regarding voluntary 8-K filings for comparable events;

• The timing of BRB's next periodic filing (the Q2 2024 Form 10-Q, expected to be filed in early August 2024); and

• Nasdaq listing standards (BRB trades on the Nasdaq Stock Market under the ticker symbol BRDG), which require listed companies to promptly disclose material events through public announcement. Nasdaq Listing Rule 5250(b)(1) requires the timely disclosure of material information that would reasonably be expected to affect the value of BRB's securities or influence investors' decisions.

In our preliminary assessment, a voluntary 8-K and accompanying press release would be advisable, both to ensure compliance with Regulation FD and Nasdaq listing standards and to provide the market with timely information regarding the resolution of a previously disclosed risk factor. The filing need not be extensive — a brief disclosure under Item 8.01 noting the receipt of the Staff's termination letter and the conclusion of the investigation without an enforcement action would be sufficient.

B. Updating Prior Disclosure

Regardless of whether BRB elects to file a voluntary 8-K, BRB's periodic filings should be updated to reflect the termination of the investigation. Specifically:

• BRB's FY 2023 Form 10-K (filed February 27, 2024) included disclosure of the SEC investigation in both the Legal Proceedings section and the Risk Factors section. These disclosures should be updated in BRB's next periodic filing.

• If BRB's Q1 2024 Form 10-Q has already been filed (the filing deadline for Q1 2024, based on BRB's accelerated-filer status, was May 10, 2024), and if that filing continued to disclose the investigation as a pending matter, the Q2 2024 Form 10-Q should include updated disclosure reflecting the termination. If the Q1 2024 Form 10-Q has not yet been filed, the termination should be reflected in that filing.

• The updated disclosure should note the receipt of the Staff's termination letter, confirm that the Staff has determined not to recommend an enforcement action, and include the standard caveat (consistent with the termination letter itself) that the letter does not constitute a determination that no violation occurred.

We recommend that C&H coordinate with Caldwell Pratt & Stein LLP to prepare the appropriate disclosure language for inclusion in BRB's next periodic filing.

VIII. Document Retention and Matter Administration

A. Document Retention

All documents in the matter file should be retained for a minimum period of seven years from the date of the Staff's termination letter — that is, through at least May 30, 2031. This retention period encompasses and exceeds the full remaining statute of limitations period for all three periodic filings at issue (the latest of which expires on August 9, 2028) and provides an additional margin of approximately three years beyond the latest limitations expiration.

The documents to be retained include, without limitation, the following categories:

• The 284,617 documents produced to the SEC, Bates-numbered BRB-SEC-000001 through BRB-SEC-284617, together with all associated metadata, load files, and production logs;

• The privilege log containing 1,847 entries, together with all underlying privilege-review memoranda and redaction logs;

• All internal memoranda, research memoranda, and strategy memoranda prepared by C&H in connection with the investigation;

• All correspondence between C&H and the SEC Staff, including emails, letters, and records of telephone conferences;

• All correspondence between C&H and BRB (including Derek Sung, the Audit Committee, and individual witnesses), subject to the attorney-client privilege;

• The 42-page Wells Submission dated April 5, 2024, and the supplemental letter dated April 22, 2024, together with all exhibits and supporting materials;

• Transcripts of the investigative testimony of Patricia Navarrete, Naveen Chakravarti, and Raymond Hu;

• All work product and reports of Brindoval Analytic Partners LLC;

• All D&O insurance correspondence, including the notice of claim, the coverage acknowledgment and reservation-of-rights letter, and all billing and reimbursement records; and

• This memorandum and all attachments.

B. Litigation Hold Release

The litigation hold implemented at the outset of the investigation — pursuant to the Privilege Protocol & Document Preservation Memorandum issued by C&H to Derek Sung on September 22, 2023 — may be released with respect to routine document-destruction cycles, subject to confirmation that no other pending matter, investigation, or reasonably anticipated litigation requires preservation of the same custodians or document sets.

The litigation hold covered the following custodians: Patricia Navarrete, Naveen Chakravarti, Raymond Hu, Derek Sung, Marcus R. Ellingham (CEO), and seventeen additional custodians identified in the Preservation Memorandum. Before releasing the hold, we recommend coordinating with Derek Sung to confirm:

(a) that no other pending or threatened legal proceeding, regulatory inquiry, or internal investigation requires continued preservation of documents from these custodians;

(b) that BRB's ordinary-course document-retention and destruction policies are current and adequate; and

(c) that the release of the litigation hold is communicated in writing to all affected custodians and to BRB's IT department.

C. Matter Status

Matter No. SC-MAT-2023-4172 should be designated for close-out in the Firm's matter-management system. A separate Matter Close-Out Memorandum will be prepared to address administrative closure, final billing reconciliation (including confirmation that all invoices have been submitted and all payments received), conflicts-clearance updates (including the removal of BRB from the Firm's active-matter conflicts database, subject to a continued adverse-party screen for the duration of the document-retention period), and file disposition.

The target date for preparation of the Matter Close-Out Memorandum is June 12, 2024.

IX. Recommended Next Steps

Based on the analysis set forth in this memorandum, we recommend the following action items:

1. Distribute this Memorandum. This memorandum should be distributed to Victoria Chambers and Howard Quinn for review and approval. Upon approval, the memorandum should be finalized and filed in the matter file under Matter No. SC-MAT-2023-4172.

2. Prepare Client Notification Letter. C&H should prepare a formal letter to Derek Sung (General Counsel) and Marcus R. Ellingham (Chief Executive Officer) advising of the Staff's termination of the investigation and providing guidance on disclosure obligations and next steps. The letter should attach a copy of the Staff's termination letter and summarize the key conclusions of this memorandum. Target date: June 3, 2024.

3. Prepare Audit Committee Final Report. C&H should prepare a comprehensive final report for Gwendolyn Prescott, Chair of the BRB Audit Committee, summarizing the full arc of the investigation from opening through termination. The report should address: (a) the factual background and subject matter of the investigation; (b) the document-production and testimony process; (c) the Wells notification and the Wells Submission; (d) the Staff's termination decision; (e) lessons learned; and (f) recommended enhancements to BRB's disclosure controls and procedures, including any improvements to the CECL model governance framework, qualitative-adjustment documentation, and internal materiality-assessment processes. Target date: June 21, 2024.

4. Submit Final D&O Insurance Invoices. C&H (or BRB's in-house team with our assistance) should submit final invoices to Northcastle Mutual Assurance Company for reimbursement of defense costs in excess of the $2,500,000 entity retention. The estimated remaining reimbursable amount is approximately $766,022 (of the total $1,966,022 reimbursable, net of approximately $1,200,000 in interim payments received). Target date: June 7, 2024.

5. Coordinate with Securities Reporting Counsel. C&H should coordinate with Caldwell Pratt & Stein LLP (Martin Caldwell) regarding: (a) the advisability and timing of a voluntary Form 8-K filing under Item 8.01 and/or an accompanying press release; (b) the preparation of updated legal-proceedings and risk-factor disclosure language for inclusion in BRB's next periodic filing; and (c) compliance with Nasdaq Listing Rule 5250(b)(1) regarding material-event disclosure. Target date: June 5, 2024.

6. Coordinate Release of Litigation Hold. C&H should coordinate with Derek Sung to confirm that no other pending matter requires continued preservation and, upon confirmation, issue a formal litigation-hold release memorandum to all affected custodians and BRB's IT department. Target date: June 14, 2024.

7. Prepare Matter Close-Out Memorandum. C&H should prepare a Matter Close-Out Memorandum addressing administrative closure, final billing reconciliation, conflicts-clearance updates, and file disposition. Target date: June 12, 2024.

8. Ongoing Monitoring. Although the prospect of future enforcement activity is assessed as remote, C&H should continue to monitor for any unusual developments that could indicate renewed regulatory interest, including: (a) Congressional inquiries or requests for information regarding BRB or the BridgeFin portfolio; (b) PCAOB communications or inspection reports involving Whitfield Keane LLP; (c) private securities litigation filings referencing the SEC investigation or the BridgeFin ACL; and (d) any whistleblower complaint or media report that could prompt the Staff to revisit its termination decision. Monitoring should continue through the expiration of the latest applicable statute of limitations (August 9, 2028) and may be conducted on a quarterly basis as part of C&H's general docket review.

X. Conclusion

The termination of SEC Investigation File No. HO-14287 without an enforcement recommendation represents a favorable and definitive resolution for Belmont Ridge Bank National Association. The investigation, which spanned approximately eight months from its opening on September 18, 2023 to the Staff's termination letter dated May 30, 2024, was among the more significant regulatory matters in BRB's recent history and involved substantial resources from both the Bank and the Firm.

Over the course of the investigation, BRB produced 284,617 documents (approximately 1.42 million pages) and presented three key witnesses for sworn testimony. The investigation proceeded through the Wells process — the most rigorous level of pre-filing Staff review — including a 42-page Wells Submission and a supplemental letter with updated credit metrics. The Firm retained Brindoval Analytic Partners LLC to provide independent forensic accounting analysis, which proved instrumental in demonstrating that BRB's ACL reflected a reasonable accounting judgment within the range of estimates permitted by ASC 326.

The core defense — that BRB's CECL methodology and ACL disclosures reflected reasonable accounting judgments consistent with applicable accounting standards and were not materially misstated — was vindicated by the Staff's decision not to recommend enforcement action. The alleged understatement of $37.3 million was shown to be within the range of reasonable estimates, and no fraud or scienter was alleged at any point.

No tolling agreement was in place at any time during the investigation, and the practical risk of the investigation being reopened is assessed as remote. The remaining limitations periods (expiring between February 2028 and August 2028) provide substantial theoretical runway for future action, but the thoroughness of the Staff's investigation, the completion of the Wells process, and the nature of the underlying dispute all weigh heavily against the prospect of renewed enforcement activity.

The matter is ready for close-out pending completion of the action items identified in Section IX above.

PREPARED BY:

________________________________________

Jasmine Thornton Lead Associate Calderwood & Harkness LLP

________________________________________

Liam Donahue Working Associate Calderwood & Harkness LLP

REVIEWED AND APPROVED BY:

________________________________________

Victoria Chambers Partner (Responsible Partner) Calderwood & Harkness LLP

Date: ________

Calderwood & Harkness LLP 425 Lexington Avenue, 30th Floor New York, NY 10017

ATTACHMENT A

SEC Staff Termination Letter dated May 30, 2024 In the Matter of Belmont Ridge Bank National Association File No. HO-14287

The full text of the SEC Staff termination letter is reproduced in Section II.A of this memorandum. The original letter, received via email on May 30, 2024 and by U.S. mail on June 3, 2024, is maintained in the matter file under Matter No. SC-MAT-2023-4172.

TO:	Victoria Chambers, Partner; Howard Quinn, Partner
FROM:	Jasmine Thornton, Lead Associate; Liam Donahue, Working Associate
RE:	Belmont Ridge Bank National Association — SEC Division of Enforcement Investigation, File No. HO-14287; Termination of Investigation — File Copy and Analysis
MATTER NO.:	SC-MAT-2023-4172
Filing	Date Filed	Five-Year Limitations Expiration
FY 2022 Form 10-K	February 28, 2023	February 28, 2028
Q1 2023 Form 10-Q	May 10, 2023	May 10, 2028
Q2 2023 Form 10-Q	August 9, 2023	August 9, 2028
Timekeeper	Role	Hours	Rate	Total
Victoria Chambers	Partner (Responsible)	412.0	$1,475/hr	$607,700
Howard Quinn	Partner	187.5	$1,350/hr	$253,125
Jasmine Thornton	Lead Associate	2,108.0	$895/hr	$1,886,660
Liam Donahue	Working Associate	2,907.0	$695/hr	$2,020,365
Total	5,614.5	$4,767,850
Component	Amount
Calderwood & Harkness LLP fees	$3,847,622
Brindoval Analytic Partners LLC fees	$618,400
Total defense costs	$4,466,022
Component	Amount
Total defense costs	$4,466,022
Less: D&O entity retention	($2,500,000)
Amount reimbursed / to be reimbursed by Northcastle Mutual	$1,966,022

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT — DO NOT DISTRIBUTE
CALDERWOOD & HARKNESS LLP 425 Lexington Avenue, 30th Floor New York, NY 10017
May 30, 2024
MEMORANDUM
CONFIDENTIALITY NOTICE: This memorandum is protected by the attorney-client privilege and the attorney work-product doctrine and is prepared in connection with the provision of legal advice to Belmont Ridge Bank National Association. It contains confidential and privileged information. Do not distribute, copy, or disclose this memorandum, in whole or in part, without the prior written authorization of Victoria Chambers, Partner, Calderwood & Harkness LLP. Any unauthorized dissemination may constitute a waiver of applicable privileges.
Right-click to update Table of Contents
I. Executive Summary
On May 30, 2024, Calderwood & Harkness LLP ("C&H" or the "Firm") received a letter from the Staff of the Securities and Exchange Commission's Division of Enforcement (the "Staff"), signed by Branch Chief Renata Moss, advising that the Staff has completed its investigation in the matter captioned In the Matter of Belmont Ridge Bank National Association, File No. HO-14287 (Formal Order of Investigation No. EN-2023-0947), and has determined not to recommend an enforcement action against Belmont Ridge Bank National Association ("BRB" or the "Bank"). A complete reproduction of the Staff's termination letter is set forth in Section II of this memorandum and attached hereto as Attachment A.
This outcome constitutes a Wells-stage termination — the most favorable procedural posture in which an investigation can conclude once the Staff has reached the point of formally notifying a subject of its intention to recommend charges. On March 8, 2024, the Staff issued a telephonic Wells notification to C&H, advising that it was considering recommending charges against BRB under Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 13a-1 and 12b-20 promulgated thereunder. In response, C&H prepared and filed a comprehensive 42-page Wells Submission on April 5, 2024, followed by a supplemental letter on April 22, 2024 presenting updated credit-quality metrics from BRB's FY 2023 reporting period. The Staff's decision not to proceed with an enforcement recommendation, issued less than two months after the Wells Submission, represents a full vindication of the defense strategy pursued by this Firm on behalf of the Bank.
The investigation, which was opened on September 18, 2023 — initially as a matter under inquiry ("MUI") before being elevated to a formal order of investigation on October 12, 2023 — concerned the adequacy of BRB's allowance for credit losses ("ACL") disclosures relating to the Bank's BridgeFin digital lending portfolio. Specifically, the Staff examined whether BRB's ACL as reported in the following periodic filings was materially understated and whether BRB's disclosures concerning the assumptions and methodologies underlying the ACL were inadequate:
•  BRB's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Commission on February 28, 2023 (the "FY 2022 10-K");
•  BRB's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the Commission on May 10, 2023 (the "Q1 2023 10-Q"); and
•  BRB's Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, filed with the Commission on August 9, 2023 (the "Q2 2023 10-Q").
This memorandum is prepared for the matter file and for the review of the responsible partners. It is organized as follows: (a) Section II reproduces the full text of the Staff's termination letter and documents the circumstances of its receipt; (b) Section III analyzes the legal effect of the termination; (c) Section IV discusses the absence of a tolling agreement and the applicable statute of limitations; (d) Section V addresses related proceedings and regulatory considerations, including the Bank's relationship with its primary banking regulator, the Office of the Comptroller of the Currency ("OCC"), and the status of private securities litigation exposure; (e) Section VI addresses D&O insurance implications and final cost reporting; (f) Section VII discusses disclosure considerations; (g) Section VIII addresses document retention and matter administration; and (h) Section IX identifies recommended next steps.
II. Attachment A — SEC Staff Termination Letter (Full Text Reproduction)
A. Reproduction of the Letter
The following is a verbatim reproduction of the Staff's termination letter received on May 30, 2024. The original letter is maintained in the matter file and has been uploaded to the Firm's document management system under Matter No. SC-MAT-2023-4172.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION DIVISION OF ENFORCEMENT 100 F Street NE Washington, D.C. 20549
May 30, 2024
Victoria Chambers, Esq. Calderwood & Harkness LLP 425 Lexington Avenue, 30th Floor New York, NY 10017
Re: In the Matter of Belmont Ridge Bank National Association, File No. HO-14287
Dear Ms. Chambers:
The investigation captioned above was conducted pursuant to a Formal Order of Investigation, No. EN-2023-0947, issued on October 12, 2023. Based upon the information gathered in the investigation to date, the Staff of the Division of Enforcement has completed its investigation and, at this time, does not intend to recommend an enforcement action by the Commission against Belmont Ridge Bank National Association.
This letter should not be construed as an indication that the Commission or its Staff has determined that no violation of the federal securities laws has occurred. The Commission reserves the right to take whatever action it deems appropriate at any time in the future. Further, this letter should not be construed as a confirmation that there are no civil or other proceedings that may be brought at a later date.
We appreciate the cooperation of Belmont Ridge Bank National Association and its counsel during the course of this investigation.
Sincerely,
Renata Moss Branch Chief Division of Enforcement
cc: Andrea Felton, Senior Staff Attorney Christopher Yuen, Staff Attorney Diane Milosevic, Staff Accountant Gregory Bonham, Assistant Director, Financial Fraud Unit
B. Notes on Receipt
The termination letter was initially received via email from Senior Staff Attorney Andrea Felton to Victoria Chambers and Jasmine Thornton at approximately 2:17 PM Eastern Time on May 30, 2024. The email transmission included a PDF scan of the signed letter on Division of Enforcement letterhead. Ms. Felton's email contained no additional substantive commentary beyond a brief transmittal message.
A hard copy of the letter was subsequently received by regular U.S. mail at the Firm's New York office on June 3, 2024. The hard copy was consistent in all material respects with the PDF version received electronically.
Both the electronic and hard-copy versions of the letter have been filed in the matter file under Matter No. SC-MAT-2023-4172 and uploaded to the Firm's document management system. The electronic version has been saved in the "Correspondence — SEC" subfolder with the filename "2024-05-30SECTerminationLetterHO-14287.pdf."
III. Legal Effect of the Termination
A. Nature of a Staff Closing Letter
The letter reproduced in Section II constitutes a statement of the Staff's current enforcement posture with respect to BRB. It reflects the Staff's determination, based on the information gathered during the investigation, that it will not recommend that the Commission bring an enforcement action against the Bank at this time. Several important legal characteristics of the letter merit discussion.
First, the letter is not a formal order of the Commission. It is not an adjudication, a consent decree, a no-action letter, or any other form of binding Commission determination. The letter is issued by the Division of Enforcement Staff — specifically, by Branch Chief Renata Moss — acting within the Staff's delegated authority to manage and close investigations. The Commission itself has not voted on any matter related to this investigation, and the closing letter does not reflect any formal Commission determination regarding the merits of the underlying conduct.
Second, the Staff's decision not to recommend an enforcement action is inherently discretionary. The Staff exercises prosecutorial discretion in determining which investigations to pursue and which to terminate, and the decision to close an investigation does not require any particular finding or conclusion regarding the merits. The closing letter expressly preserves the Commission's authority to "take whatever action it deems appropriate at any time in the future," which is standard boilerplate language included in virtually all SEC investigation closing letters. This reservation of authority is consistent with the Commission's general enforcement policies and does not, in our assessment, signal any particular concern about BRB's conduct or any intention to revisit the matter.
Third, and critically, the closing letter does not constitute a finding that no violation of the federal securities laws occurred. The letter explicitly states that it "should not be construed as an indication that the Commission or its Staff has determined that no violation of the federal securities laws has occurred." This language is standard and appears in essentially all Staff closing letters. It reflects the fundamental principle that the Staff's decision not to recommend charges is a prosecutorial judgment, not a substantive determination of innocence or non-violation.
Fourth, no admission, consent, or settlement of any kind was required from BRB in connection with the termination. The closing was unilateral — it reflects the Staff's independent determination, made after reviewing the full investigative record (including BRB's Wells Submission and supplemental materials), that an enforcement recommendation is not warranted. BRB was not required to agree to any conditions, undertakings, remedial measures, or future reporting obligations as a condition of the termination.
While the reopening of a terminated investigation is theoretically possible under the Commission's reserved authority, such reopenings are, in practice, exceedingly rare. They typically occur only in circumstances involving the discovery of previously concealed evidence, the emergence of a credible whistleblower complaint alleging fraud or obstruction that was not known during the initial investigation, or a significant change in the legal or factual landscape (such as a restatement of the financial statements at issue). None of these circumstances is present here, and the risk of reopening is assessed in detail in Section IV.D below.
B. Precedential and Collateral Effect
The closing letter has no res judicata or collateral estoppel effect in any other judicial or administrative proceeding. Because the letter does not constitute an adjudication on the merits — and, indeed, does not address the merits at all — it cannot be invoked as a binding determination in any subsequent proceeding involving BRB, whether brought by private plaintiffs, other regulatory agencies, or the Commission itself.
BRB's cooperation with the SEC investigation, including the production of documents and the testimony of witnesses, cannot be used against the Bank in any other proceeding as evidence of wrongdoing. However, it is important to note that documents produced to the SEC during the investigation may be subject to sharing arrangements with other federal and state regulators. The SEC maintains memoranda of understanding and interagency cooperation agreements with a number of regulatory bodies, including the Department of Justice ("DOJ"), the OCC, the Federal Deposit Insurance Corporation ("FDIC"), and various state attorneys general. Under these arrangements, the SEC may share information obtained during an investigation with other agencies without requiring BRB's consent, subject to certain procedural requirements.
We note that no indication of any referral to the DOJ or any other agency was communicated by the Staff at any point during the investigation. Moreover, the nature of the conduct at issue — an accounting-estimate dispute involving the application of ASC 326 (Current Expected Credit Losses, or "CECL") — is not the type of conduct that typically generates criminal referrals. The Staff never alleged fraud, and no scienter-based charges were contemplated at any point. The absence of any referral indication, combined with the non-fraud character of the investigation, significantly mitigates the risk of a parallel proceeding by another agency.
The termination of the SEC investigation does not affect BRB's obligations to its primary banking regulator, the OCC. The OCC conducted a concurrent supervisory examination during the relevant period, the results of which are discussed in Section V.A below. The OCC's supervisory processes are independent of the SEC's enforcement activities, and the termination of the SEC investigation does not constitute a finding or determination by any banking regulator.
C. Implications for Individual Officers and Employees
An important aspect of the termination concerns its effect on the individual officers and employees of BRB who were involved in the investigation. The Wells notification call on March 8, 2024, identified only BRB as an entity — not any individual officer, director, or employee — as a potential respondent. Throughout the course of the investigation, no individual was separately identified by the Staff as a subject, target, or person of interest.
Three senior BRB personnel provided sworn investigative testimony to the Staff during the course of the investigation:
•  Patricia Navarrete, Executive Vice President and Chief Financial Officer, testified on January 18, 2024 (approximately 6 hours, 14 minutes of on-the-record testimony);
•  Naveen Chakravarti, Senior Vice President and Division Head, BridgeFin Digital Lending, testified on January 25, 2024 (approximately 5 hours, 42 minutes of on-the-record testimony); and
•  Raymond Hu, Senior Vice President and Chief Accounting Officer, testified on February 8, 2024 (approximately 7 hours, 8 minutes of on-the-record testimony).
None of these individuals was separately notified of potential charges at any time, and no individual Wells notification was issued. The closing letter is addressed to BRB through its counsel, Victoria Chambers, and does not separately address any individual.
Based on the foregoing, we conclude that the Staff's termination of the investigation effectively resolves the matter as to both BRB and its personnel. The standard disclaimer language in the closing letter preserves the Commission's theoretical authority to take future action against any person, including individuals, but the absence of any individual Wells notification, combined with the non-scienter posture of the investigation and the Staff's decision to close the matter after a full Wells process, renders the prospect of future individual charges arising from this investigation exceedingly remote.
We recommend that C&H prepare a brief communication for Derek Sung (General Counsel) confirming this assessment, which Mr. Sung may share with Ms. Navarrete, Mr. Chakravarti, and Mr. Hu as he deems appropriate.
IV. Statute of Limitations Analysis
A. Applicable Statute
The general statute of limitations for SEC civil enforcement actions seeking penalties is set forth in 28 U.S.C. § 2462, which provides:
"Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued."
This five-year limitations period applies to all claims for civil monetary penalties brought by the SEC, regardless of the underlying statutory provision. The Supreme Court held in Kokesh v. SEC, 581 U.S. 455 (2017), that disgorgement, as sought by the SEC, constitutes a "penalty" within the meaning of Section 2462, and is therefore subject to the same five-year limitations period. Prior to Kokesh, the SEC had taken the position that disgorgement was an equitable remedy not subject to any statute of limitations; that position is no longer tenable.
For claims seeking only injunctive relief under Section 21(d) of the Exchange Act, there is some judicial uncertainty as to whether Section 2462 applies. Several courts have held that purely injunctive relief is not a "penalty" within the meaning of the statute and is therefore not subject to the five-year limitations period. See, e.g., SEC v. Graham, 823 F.3d 1357, 1363 (11th Cir. 2016). However, as a practical matter, the SEC rarely seeks standalone injunctive relief without an accompanying penalty claim, and the relevance of this distinction to BRB's case is minimal.
B. Application to BRB's Filings
The potential violations at issue in the investigation arose from the filing of three periodic reports with the Commission. For purposes of Section 2462, the limitations period accrues on the date of the alleged violation — which, in the case of a filing violation under Section 13(a) and the rules thereunder, is the date on which the filing was made (or, in the case of a failure-to-file claim, the date on which the filing was due). The relevant dates and corresponding limitations expiration dates are as follows:
As the table above reflects, even absent the Staff's termination of the investigation, substantial time remains within the limitations period for the Commission to bring an action if it were to reverse course. The earliest-expiring potential claim (relating to the FY 2022 10-K) does not expire until February 28, 2028 — approximately three years and nine months from the date of the closing letter. The latest-expiring claim (relating to the Q2 2023 10-Q) does not expire until August 9, 2028 — approximately four years and two months from the date of the closing letter.
C. Tolling Agreement Status
No tolling agreement was entered into between BRB and the SEC at any point during the investigation. This was a deliberate strategic decision, and the circumstances merit documentation.
During the October 20, 2023 meet-and-confer between C&H and the Staff regarding the document-production protocol, Senior Staff Attorney Andrea Felton informally raised the possibility that a tolling agreement might be appropriate, noting that the Staff anticipated a lengthy review period and that a tolling agreement would enable the Staff to proceed at a measured pace without concern about the running of the limitations period. Victoria Chambers declined this informal suggestion, advising that BRB intended to cooperate fully and expeditiously with the investigation but wished to preserve all procedural defenses. This position was consistent with the defense strategy — agreed upon with Derek Sung and the Audit Committee — of maintaining maximum cooperation while avoiding any voluntary extension of the Commission's enforcement window.
The Staff did not press the issue, and no further discussion of a tolling agreement occurred during the remainder of the investigation.
The absence of a tolling agreement means that the five-year limitations clock under 28 U.S.C. § 2462 has run uninterrupted from the respective filing dates of the periodic reports at issue. No period of tolling has been agreed to, and no judicial tolling has been ordered. Accordingly, the limitations analysis set forth in Section IV.B above reflects the full and accurate remaining limitations periods.
While the remaining limitations period — approximately 3.75 to 4.2 years from the date of the closing letter — is substantial in absolute terms, the fact that the Staff elected to terminate the investigation after conducting a full Wells process significantly reduces the practical likelihood that the Commission would seek to bring an action during the remaining period. A Staff decision to terminate after a Wells process reflects a considered judgment, made after reviewing all available evidence and the defense's arguments, that the case is not meritorious or that the available evidence is insufficient to support a successful enforcement recommendation. Reversing such a decision would require new and significant evidence or a change in legal or factual circumstances that is not presently foreseeable.
D. Risk Assessment
We assess the likelihood of the Commission reopening this investigation or reversing the Staff's termination decision as very low. This assessment is based on the following factors, each of which independently weighs against the prospect of future action and which, taken together, render such action remote:
Thoroughness of the Investigation. The Staff conducted a comprehensive and rigorous investigation. BRB produced 284,617 documents — comprising approximately 1.42 million pages — across six rolling productions between October 30, 2023 and February 15, 2024. All documents were Bates-numbered (BRB-SEC-000001 through BRB-SEC-284617) and produced in accordance with the SEC's Electronic Productions of Documents standards. In addition, a privilege log containing 1,847 entries was prepared and submitted. The Staff issued three subpoenas for documents and three subpoenas for testimony, and no discovery disputes arose during the investigation that would have left gaps in the evidentiary record.
Witness Testimony. Three key witnesses — Patricia Navarrete (CFO), Naveen Chakravarti (SVP & Division Head, BridgeFin), and Raymond Hu (Chief Accounting Officer) — provided sworn investigative testimony. Each witness testified at length and was examined by multiple members of the Staff team. No witness invoked the Fifth Amendment or otherwise declined to answer questions. The testimony was consistent, credible, and supportive of BRB's position that the ACL reflected reasonable accounting judgments.
Completion of the Wells Process. The investigation proceeded through the full Wells process, which represents the most rigorous level of pre-filing Staff review. The Staff issued a Wells notification on March 8, 2024; C&H filed a detailed 42-page Wells Submission on April 5, 2024; and a supplemental letter with updated credit metrics was submitted on April 22, 2024. The Staff's decision to terminate after reviewing the Wells Submission reflects a considered and final Staff judgment, not merely a deferral of the enforcement decision.
Nature of the Dispute. The core dispute in the investigation was whether BRB's ACL of $143.5 million — representing 3.50% of the $4.1 billion in outstanding BridgeFin digital lending loans as of December 31, 2022 — was materially understated relative to the Staff's preliminary view of $180.8 million (4.41% of outstanding loans). The alleged understatement of $37.3 million was framed at all times as a reasonable-estimation dispute under ASC 326 (CECL), not as a fraud. The Staff never alleged intentional misstatement, reckless disregard, or any other form of scienter. The dispute was, at its core, a disagreement about the appropriate level of qualitative adjustments to BRB's modeled loss estimates — a quintessentially judgmental exercise that courts and the Commission have long recognized as involving a range of reasonable outcomes.
Materiality Analysis. The alleged understatement of $37.3 million exceeded BRB's internal materiality threshold of $30.6 million (calculated as 5% of FY 2022 pre-tax income of $612 million) by only $6.7 million. In our Wells Submission, we demonstrated that this difference was within the range of reasonable estimates as established by the forensic analysis prepared by Brindoval Analytic Partners LLC (the Firm's retained forensic accounting expert) and by a peer-bank comparison showing that BRB's ACL coverage ratio was consistent with the range observed among similarly situated financial institutions. The Staff did not challenge the Brindoval analysis or the peer-comparison data in any subsequent communication.
Improving Credit Metrics. By the time of the supplemental Wells letter on April 22, 2024, BRB's Q4 2023 credit-quality metrics for the BridgeFin portfolio had improved materially. The 90+ day delinquency rate had declined to 1.48%, down from the elevated levels that had prompted the Staff's initial concern. Moreover, BRB had increased its ACL to $156.2 million as reported in the FY 2023 Form 10-K filed February 27, 2024, reflecting management's exercise of judgment in light of evolving credit conditions. These developments further supported BRB's position that its ACL methodology was sound and that the FY 2022 ACL, while lower than the Staff's estimate, was not materially misstated.
Absence of Scienter Indicators. No scienter-based charges — such as fraud under Section 10(b) and Rule 10b-5, or books-and-records violations under Section 13(b)(2)(B) — were contemplated at any point during the investigation. The Wells notification referenced only Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 12b-20 — all of which are strict-liability or negligence-based provisions that do not require proof of scienter. The absence of any fraud-based theory further reduces the risk of a future action, as the Commission is more likely to revisit a terminated investigation when potential fraud is involved.
Bottom Line. Absent extraordinary circumstances — such as the discovery of previously concealed evidence, the emergence of a credible whistleblower complaint alleging fraud or intentional manipulation of the ACL, or a restatement of BRB's financial statements for the periods at issue — the prospect of future enforcement action arising from File No. HO-14287 is remote. We recommend that BRB treat the matter as definitively resolved for all practical purposes, while maintaining the document-retention protocols described in Section VIII as a prudent precaution.
V. Related Proceedings and Regulatory Considerations
A. OCC Supervisory Status
BRB's primary federal banking regulator is the Office of the Comptroller of the Currency, which supervises BRB under OCC Charter No. 24891. Throughout the period covered by the SEC investigation, the OCC conducted its own concurrent supervisory examination of BRB's ACL methodology and BridgeFin credit-quality reporting. The results of that examination are relevant to the overall risk assessment.
The OCC's examination found no material deficiency in BRB's ACL methodology with respect to the BridgeFin digital lending portfolio. No enforcement action, consent order, cease-and-desist order, formal agreement, or commitment letter was issued by the OCC in connection with the ACL matters that were the subject of the SEC investigation. Similarly, no matter requiring attention ("MRA") or matter requiring immediate attention ("MRIA") was issued by the OCC examiners in connection with the BridgeFin ACL.
BRB's CAMELS composite rating — the confidential supervisory rating assigned by the OCC based on its assessment of Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk — remains at 2 ("Satisfactory") as of the most recent examination cycle completed in September 2023. A CAMELS composite rating of 2 indicates that the Bank is "fundamentally sound" and that "only moderate weaknesses are present and are well within the board of directors' and management's capabilities and willingness to correct."
The SEC's termination of its investigation does not alter BRB's supervisory relationship with the OCC in any material respect. BRB should continue to engage cooperatively with its OCC examiners in the ordinary course regarding BridgeFin credit-quality reporting, CECL model governance, and any other supervisory matters. We recommend that Derek Sung advise the OCC's lead examiner of the SEC investigation termination as a matter of courtesy and transparency, consistent with BRB's general approach of maintaining an open and cooperative relationship with its banking regulators.
B. Private Securities Litigation
As of the date of this memorandum, no private securities class action, derivative lawsuit, or other private litigation has been filed against BRB or any of its officers and directors in connection with the ACL disclosures at issue in the SEC investigation. We have monitored federal and state court dockets, as well as securities litigation databases, and have identified no pending or threatened private actions.
The SEC's closing letter does not immunize BRB from private litigation, nor does it establish any defense or bar to private claims. However, the absence of an SEC enforcement action substantially reduces the risk that plaintiffs' counsel will pursue claims based on these facts. In the experience of this Firm, plaintiff-side securities litigation firms frequently monitor SEC enforcement activity for potential targets, and the filing of an SEC action is often a catalyst for the filing of related private claims. The absence of any enforcement action here removes that catalyst.
Moreover, even if private claims were to be pursued, significant legal obstacles would confront any potential plaintiff. The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") would preempt any state-law class action alleging misrepresentation in connection with the purchase or sale of a covered security, channeling any such claims into federal court under the federal securities laws. The Private Securities Litigation Reform Act of 1995 ("PSLRA") would impose heightened pleading requirements, including the requirement that the plaintiff allege, with particularity, facts giving rise to a "strong inference" of scienter — a standard that would be extremely difficult to satisfy on the facts of this case, given the non-fraud posture of the SEC investigation and the reasonable-estimate character of the underlying ACL dispute.
Additionally, BRB's stock price (Nasdaq: BRDG) did not experience a statistically significant decline in connection with the disclosure of the SEC investigation or the underlying ACL matters, which would complicate any plaintiff's effort to establish loss causation and economic loss — essential elements of a private securities fraud claim under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).
We assess the risk of private securities litigation arising from these facts as low, and recommend that BRB continue to monitor for any litigation activity in the ordinary course.
C. Auditor / PCAOB Considerations
Whitfield Keane LLP, a public accounting firm registered with the Public Company Accounting Oversight Board ("PCAOB") under Registration No. 2847, served as BRB's independent registered public accounting firm for fiscal years 2021 and 2022. The audit engagement for the FY 2022 financial statements — which included BRB's ACL estimates at issue in the SEC investigation — was led by engagement partner Lorraine Dupont.
The SEC's termination of the investigation against BRB does not directly address any PCAOB matter involving Whitfield Keane. The PCAOB has independent authority to investigate and sanction registered public accounting firms and their associated persons for violations of the Sarbanes-Oxley Act, PCAOB standards, or applicable professional standards. However, the absence of an SEC finding of material misstatement in BRB's financial statements significantly reduces the basis for any audit-failure inquiry. An audit failure, by definition, presupposes a material misstatement in the audited financial statements; without such a finding, there is no predicate for a claim that the auditor failed to detect a misstatement.
Hargrove & Millstein LLP, under the direction of lead partner Samuel Hargrove, served as counsel to Whitfield Keane in connection with the SEC inquiry. C&H coordinated with Hargrove & Millstein on several occasions during the investigation, including with respect to the production of Whitfield Keane's audit workpapers (which were produced directly by Whitfield Keane pursuant to a separate SEC subpoena) and the scheduling of testimony. We are not aware of any separate PCAOB investigation or other proceeding involving Whitfield Keane in connection with the BRB audit engagement, and no such proceeding has been communicated to us by Hargrove & Millstein or by any other source.
We recommend that C&H notify Hargrove & Millstein of the SEC's termination letter as a professional courtesy, so that Whitfield Keane may update its own records and make any appropriate notifications to its professional liability insurer.
VI. D&O Insurance Implications
A. Claims Status Update
The SEC investigation was timely tendered as a Claim under BRB's directors' and officers' liability insurance program. The tender was made on October 5, 2023 — promptly following the issuance of the Formal Order of Investigation on October 12, 2023, and within the policy's notice-of-claim reporting window — to the following carriers:
•  Primary Layer: Northcastle Mutual Assurance Company, D&O Policy No. NMA-DO-2023-11847, with a per-claim limit of $15,000,000 and an entity retention (self-insured retention) of $2,500,000. The policy period is July 1, 2023 through July 1, 2024.
•  First Excess Layer: Cascade Omnivrel Insurance Group, D&O Policy No. CFIG-XS1-2023-5598, providing $10,000,000 in excess of the $15,000,000 primary limit (i.e., attaching at $15,000,000 and providing coverage up to $25,000,000 in aggregate).
Northcastle Mutual's claims were administered by the insurer's retained claims counsel, Thornfield & Rowe LLP, under the direction of partner Brenda Alvaro. On October 20, 2023, Thornfield & Rowe issued a coverage acknowledgment letter accepting the SEC investigation as a covered Claim under the policy, subject to a reservation of rights. The reservation of rights was standard in scope and did not raise any coverage defenses specific to the facts of BRB's case. Throughout the investigation, Northcastle Mutual did not exercise panel-counsel requirements or seek to limit BRB's choice of defense counsel; Calderwood & Harkness was accepted as defense counsel under the policy without objection.
BRB's D&O insurance program is administered by Ridgeline Governance Advisors LLC, BRB's insurance broker of record, under the direction of Melinda Tran, Senior Vice President.
B. Final Cost Summary
The total defense costs incurred in connection with the SEC investigation are as follows:
Calderwood & Harkness LLP Total Fees: $3,847,622
The Firm's gross fees before application of the negotiated fee-cap arrangement were $4,767,850, calculated based on the following timekeeper rates and hours:
Pursuant to the fee arrangement agreed upon with BRB at the outset of the engagement, a 19.3% reduction was applied to gross fees, yielding a net fee of $3,847,622 (i.e., $4,767,850 × 0.807 = $3,847,619.50, rounded to $3,847,622 per the final invoice). This fee arrangement was negotiated by Derek Sung and approved by the Audit Committee in connection with BRB's retention of C&H for the SEC investigation.
Brindoval Analytic Partners LLC Fees: $618,400
Brindoval Analytic Partners LLC served as the Firm's retained forensic accounting expert. Brindoval's work product included a detailed analysis of BRB's CECL methodology, an independent recalculation of the ACL under alternative assumptions, a peer-bank comparison of ACL coverage ratios, and a review of BRB's qualitative adjustment framework. Brindoval's analysis was instrumental to the Wells Submission and supplemental letter.
Total Defense Costs: $4,466,022
D&O Retention and Reimbursement:
No penetration of the first excess layer (Cascade Omnivrel Insurance Group) was required, as total defense costs of $4,466,022 remained well within the $15,000,000 primary-layer limit. No indemnity payments were made or required, as the investigation was terminated without any settlement, judgment, or other disposition requiring payment by BRB or any insured person.
C. Notification to Carrier
We recommend that C&H (or BRB's in-house legal team, with our assistance) promptly take the following actions with respect to the D&O insurance program:
1.  Notify Northcastle Mutual Assurance Company (through Thornfield & Rowe LLP, Brenda Alvaro) and Ridgeline Governance Advisors LLC (Melinda Tran) of the SEC's termination of the investigation. The notification should include a copy of the Staff's termination letter (Attachment A) and a brief cover letter confirming that the matter has been resolved without any enforcement action, settlement, or payment obligation.
2.  Submit final invoices for reimbursement of defense costs in excess of the $2,500,000 entity retention. As noted above, the total amount to be reimbursed by Northcastle Mutual is $1,966,022. We understand that interim payments of approximately $1,200,000 have been received from Northcastle Mutual to date, leaving an estimated remaining balance of approximately $766,022 to be billed and collected.
3.  Confirm with Ridgeline Governance Advisors that no additional notification to Cascade Omnivrel Insurance Group is required beyond the initial notice of claim, given that the excess layer was not penetrated.
The D&O policy period of July 1, 2023 through July 1, 2024 remains in effect, and the termination of the investigation occurring within the policy period should simplify any remaining coverage issues. No late-notice defense is available to the carrier, and the reservation of rights previously issued by Thornfield & Rowe should be resolved in favor of coverage upon submission of the termination letter.
VII. Disclosure Considerations
A. Form 8-K
BRB should evaluate whether a Current Report on Form 8-K is appropriate to disclose the termination of the SEC investigation. This evaluation involves balancing several considerations.
The SEC investigation was previously disclosed in BRB's periodic filings, including as a risk factor in Part I, Item 1A of the FY 2023 Form 10-K (filed February 27, 2024) and as a legal proceeding in Part I, Item 3 (Legal Proceedings) of the same filing. The disclosure noted the existence of the investigation, the general subject matter (ACL disclosures relating to the BridgeFin portfolio), and the potential for the investigation to result in an enforcement action. The investigation was also referenced in the notes to BRB's consolidated financial statements in connection with the disclosure of contingencies under ASC 450.
The termination of the investigation is undoubtedly material positive information that a reasonable investor would consider significant in making investment decisions. The elimination of the overhang of a potential SEC enforcement action removes a meaningful risk to BRB's financial condition, results of operations, and reputation. From a pure materiality perspective, the termination merits prompt disclosure.
However, the SEC's reporting framework does not specifically mandate an 8-K filing for the termination of a government investigation. Item 8.01 of Form 8-K ("Other Events") permits, but does not require, the reporting of events that the registrant deems of importance to security holders. No other enumerated Item of Form 8-K (such as Item 1.01 for material agreements or Item 2.06 for impairments) is directly applicable.
Recommendation: We recommend that BRB consult with Derek Sung (General Counsel) and Caldwell Pratt & Stein LLP (Martin Caldwell, BRB's securities reporting counsel) regarding the advisability and timing of a voluntary 8-K filing under Item 8.01 and/or an accompanying press release announcing the investigation's resolution. Factors to be weighed include:
•  The market's awareness of the investigation (based on prior periodic-filing disclosures);
•  The potential for selective disclosure concerns under Regulation FD if the termination is communicated to certain parties before being publicly disclosed;
•  BRB's historical practice regarding voluntary 8-K filings for comparable events;
•  The timing of BRB's next periodic filing (the Q2 2024 Form 10-Q, expected to be filed in early August 2024); and
•  Nasdaq listing standards (BRB trades on the Nasdaq Stock Market under the ticker symbol BRDG), which require listed companies to promptly disclose material events through public announcement. Nasdaq Listing Rule 5250(b)(1) requires the timely disclosure of material information that would reasonably be expected to affect the value of BRB's securities or influence investors' decisions.
In our preliminary assessment, a voluntary 8-K and accompanying press release would be advisable, both to ensure compliance with Regulation FD and Nasdaq listing standards and to provide the market with timely information regarding the resolution of a previously disclosed risk factor. The filing need not be extensive — a brief disclosure under Item 8.01 noting the receipt of the Staff's termination letter and the conclusion of the investigation without an enforcement action would be sufficient.
B. Updating Prior Disclosure
Regardless of whether BRB elects to file a voluntary 8-K, BRB's periodic filings should be updated to reflect the termination of the investigation. Specifically:
•  BRB's FY 2023 Form 10-K (filed February 27, 2024) included disclosure of the SEC investigation in both the Legal Proceedings section and the Risk Factors section. These disclosures should be updated in BRB's next periodic filing.
•  If BRB's Q1 2024 Form 10-Q has already been filed (the filing deadline for Q1 2024, based on BRB's accelerated-filer status, was May 10, 2024), and if that filing continued to disclose the investigation as a pending matter, the Q2 2024 Form 10-Q should include updated disclosure reflecting the termination. If the Q1 2024 Form 10-Q has not yet been filed, the termination should be reflected in that filing.
•  The updated disclosure should note the receipt of the Staff's termination letter, confirm that the Staff has determined not to recommend an enforcement action, and include the standard caveat (consistent with the termination letter itself) that the letter does not constitute a determination that no violation occurred.
We recommend that C&H coordinate with Caldwell Pratt & Stein LLP to prepare the appropriate disclosure language for inclusion in BRB's next periodic filing.
VIII. Document Retention and Matter Administration
A. Document Retention
All documents in the matter file should be retained for a minimum period of seven years from the date of the Staff's termination letter — that is, through at least May 30, 2031. This retention period encompasses and exceeds the full remaining statute of limitations period for all three periodic filings at issue (the latest of which expires on August 9, 2028) and provides an additional margin of approximately three years beyond the latest limitations expiration.
The documents to be retained include, without limitation, the following categories:
•  The 284,617 documents produced to the SEC, Bates-numbered BRB-SEC-000001 through BRB-SEC-284617, together with all associated metadata, load files, and production logs;
•  The privilege log containing 1,847 entries, together with all underlying privilege-review memoranda and redaction logs;
•  All internal memoranda, research memoranda, and strategy memoranda prepared by C&H in connection with the investigation;
•  All correspondence between C&H and the SEC Staff, including emails, letters, and records of telephone conferences;
•  All correspondence between C&H and BRB (including Derek Sung, the Audit Committee, and individual witnesses), subject to the attorney-client privilege;
•  The 42-page Wells Submission dated April 5, 2024, and the supplemental letter dated April 22, 2024, together with all exhibits and supporting materials;
•  Transcripts of the investigative testimony of Patricia Navarrete, Naveen Chakravarti, and Raymond Hu;
•  All work product and reports of Brindoval Analytic Partners LLC;
•  All D&O insurance correspondence, including the notice of claim, the coverage acknowledgment and reservation-of-rights letter, and all billing and reimbursement records; and
•  This memorandum and all attachments.
B. Litigation Hold Release
The litigation hold implemented at the outset of the investigation — pursuant to the Privilege Protocol & Document Preservation Memorandum issued by C&H to Derek Sung on September 22, 2023 — may be released with respect to routine document-destruction cycles, subject to confirmation that no other pending matter, investigation, or reasonably anticipated litigation requires preservation of the same custodians or document sets.
The litigation hold covered the following custodians: Patricia Navarrete, Naveen Chakravarti, Raymond Hu, Derek Sung, Marcus R. Ellingham (CEO), and seventeen additional custodians identified in the Preservation Memorandum. Before releasing the hold, we recommend coordinating with Derek Sung to confirm:
(a) that no other pending or threatened legal proceeding, regulatory inquiry, or internal investigation requires continued preservation of documents from these custodians;
(b) that BRB's ordinary-course document-retention and destruction policies are current and adequate; and
(c) that the release of the litigation hold is communicated in writing to all affected custodians and to BRB's IT department.
C. Matter Status
Matter No. SC-MAT-2023-4172 should be designated for close-out in the Firm's matter-management system. A separate Matter Close-Out Memorandum will be prepared to address administrative closure, final billing reconciliation (including confirmation that all invoices have been submitted and all payments received), conflicts-clearance updates (including the removal of BRB from the Firm's active-matter conflicts database, subject to a continued adverse-party screen for the duration of the document-retention period), and file disposition.
The target date for preparation of the Matter Close-Out Memorandum is June 12, 2024.
IX. Recommended Next Steps
Based on the analysis set forth in this memorandum, we recommend the following action items:
1.  Distribute this Memorandum. This memorandum should be distributed to Victoria Chambers and Howard Quinn for review and approval. Upon approval, the memorandum should be finalized and filed in the matter file under Matter No. SC-MAT-2023-4172.
2.  Prepare Client Notification Letter. C&H should prepare a formal letter to Derek Sung (General Counsel) and Marcus R. Ellingham (Chief Executive Officer) advising of the Staff's termination of the investigation and providing guidance on disclosure obligations and next steps. The letter should attach a copy of the Staff's termination letter and summarize the key conclusions of this memorandum. Target date: June 3, 2024.
3.  Prepare Audit Committee Final Report. C&H should prepare a comprehensive final report for Gwendolyn Prescott, Chair of the BRB Audit Committee, summarizing the full arc of the investigation from opening through termination. The report should address: (a) the factual background and subject matter of the investigation; (b) the document-production and testimony process; (c) the Wells notification and the Wells Submission; (d) the Staff's termination decision; (e) lessons learned; and (f) recommended enhancements to BRB's disclosure controls and procedures, including any improvements to the CECL model governance framework, qualitative-adjustment documentation, and internal materiality-assessment processes. Target date: June 21, 2024.
4.  Submit Final D&O Insurance Invoices. C&H (or BRB's in-house team with our assistance) should submit final invoices to Northcastle Mutual Assurance Company for reimbursement of defense costs in excess of the $2,500,000 entity retention. The estimated remaining reimbursable amount is approximately $766,022 (of the total $1,966,022 reimbursable, net of approximately $1,200,000 in interim payments received). Target date: June 7, 2024.
5.  Coordinate with Securities Reporting Counsel. C&H should coordinate with Caldwell Pratt & Stein LLP (Martin Caldwell) regarding: (a) the advisability and timing of a voluntary Form 8-K filing under Item 8.01 and/or an accompanying press release; (b) the preparation of updated legal-proceedings and risk-factor disclosure language for inclusion in BRB's next periodic filing; and (c) compliance with Nasdaq Listing Rule 5250(b)(1) regarding material-event disclosure. Target date: June 5, 2024.
6.  Coordinate Release of Litigation Hold. C&H should coordinate with Derek Sung to confirm that no other pending matter requires continued preservation and, upon confirmation, issue a formal litigation-hold release memorandum to all affected custodians and BRB's IT department. Target date: June 14, 2024.
7.  Prepare Matter Close-Out Memorandum. C&H should prepare a Matter Close-Out Memorandum addressing administrative closure, final billing reconciliation, conflicts-clearance updates, and file disposition. Target date: June 12, 2024.
8.  Ongoing Monitoring. Although the prospect of future enforcement activity is assessed as remote, C&H should continue to monitor for any unusual developments that could indicate renewed regulatory interest, including: (a) Congressional inquiries or requests for information regarding BRB or the BridgeFin portfolio; (b) PCAOB communications or inspection reports involving Whitfield Keane LLP; (c) private securities litigation filings referencing the SEC investigation or the BridgeFin ACL; and (d) any whistleblower complaint or media report that could prompt the Staff to revisit its termination decision. Monitoring should continue through the expiration of the latest applicable statute of limitations (August 9, 2028) and may be conducted on a quarterly basis as part of C&H's general docket review.
X. Conclusion
The termination of SEC Investigation File No. HO-14287 without an enforcement recommendation represents a favorable and definitive resolution for Belmont Ridge Bank National Association. The investigation, which spanned approximately eight months from its opening on September 18, 2023 to the Staff's termination letter dated May 30, 2024, was among the more significant regulatory matters in BRB's recent history and involved substantial resources from both the Bank and the Firm.
Over the course of the investigation, BRB produced 284,617 documents (approximately 1.42 million pages) and presented three key witnesses for sworn testimony. The investigation proceeded through the Wells process — the most rigorous level of pre-filing Staff review — including a 42-page Wells Submission and a supplemental letter with updated credit metrics. The Firm retained Brindoval Analytic Partners LLC to provide independent forensic accounting analysis, which proved instrumental in demonstrating that BRB's ACL reflected a reasonable accounting judgment within the range of estimates permitted by ASC 326.
The core defense — that BRB's CECL methodology and ACL disclosures reflected reasonable accounting judgments consistent with applicable accounting standards and were not materially misstated — was vindicated by the Staff's decision not to recommend enforcement action. The alleged understatement of $37.3 million was shown to be within the range of reasonable estimates, and no fraud or scienter was alleged at any point.
No tolling agreement was in place at any time during the investigation, and the practical risk of the investigation being reopened is assessed as remote. The remaining limitations periods (expiring between February 2028 and August 2028) provide substantial theoretical runway for future action, but the thoroughness of the Staff's investigation, the completion of the Wells process, and the nature of the underlying dispute all weigh heavily against the prospect of renewed enforcement activity.
The matter is ready for close-out pending completion of the action items identified in Section IX above.
PREPARED BY:
________________________________________
Jasmine Thornton Lead Associate Calderwood & Harkness LLP
________________________________________
Liam Donahue Working Associate Calderwood & Harkness LLP
REVIEWED AND APPROVED BY:
________________________________________
Victoria Chambers Partner (Responsible Partner) Calderwood & Harkness LLP
Date: ________
Calderwood & Harkness LLP 425 Lexington Avenue, 30th Floor New York, NY 10017
ATTACHMENT A
SEC Staff Termination Letter dated May 30, 2024 In the Matter of Belmont Ridge Bank National Association File No. HO-14287
The full text of the SEC Staff termination letter is reproduced in Section II.A of this memorandum. The original letter, received via email on May 30, 2024 and by U.S. mail on June 3, 2024, is maintained in the matter file under Matter No. SC-MAT-2023-4172.
TO: | Victoria Chambers, Partner; Howard Quinn, Partner
FROM: | Jasmine Thornton, Lead Associate; Liam Donahue, Working Associate
RE: | Belmont Ridge Bank National Association — SEC Division of Enforcement Investigation, File No. HO-14287; Termination of Investigation — File Copy and Analysis
MATTER NO.: | SC-MAT-2023-4172
Filing | Date Filed | Five-Year Limitations Expiration
FY 2022 Form 10-K | February 28, 2023 | February 28, 2028
Q1 2023 Form 10-Q | May 10, 2023 | May 10, 2028
Q2 2023 Form 10-Q | August 9, 2023 | August 9, 2028
Timekeeper | Role | Hours | Rate | Total
Victoria Chambers | Partner (Responsible) | 412.0 | $1,475/hr | $607,700
Howard Quinn | Partner | 187.5 | $1,350/hr | $253,125
Jasmine Thornton | Lead Associate | 2,108.0 | $895/hr | $1,886,660
Liam Donahue | Working Associate | 2,907.0 | $695/hr | $2,020,365
Total | 5,614.5 | $4,767,850
Component | Amount
Calderwood & Harkness LLP fees | $3,847,622
Brindoval Analytic Partners LLC fees | $618,400
Total defense costs | $4,466,022
Component | Amount
Total defense costs | $4,466,022
Less: D&O entity retention | ($2,500,000)
Amount reimbursed / to be reimbursed by Northcastle Mutual | $1,966,022

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT — DO NOT DISTRIBUTE

MEMORANDUM

PREPARED BY:

REVIEWED AND APPROVED BY:

ATTACHMENT A

Record

Parties

Dates

Amounts